Repaying Student Loans: Tips,

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1 Repaying Your Student Loans: Tips, Options, Solutions Know Your Options and Eligibility Government Collection Powers and Limitations Tools for Keeping Track of Debt and Repayment Taking Action

2 Locate and Review Your Student Loan Details For Federal Loans Access the National Student Loan Data System at Borrowers must request PIN numbers to access their loan information. To request a PIN number, log onto Alternatively, call the U.S. Department of Education Federal Student Aid Information Center at FEDAID. For Private Student Loans Locate and review all your loan documents. For additional information, contact the lender or collector. Your credit report also may have useful information. Consider Your Future Education Goals Getting Started Whether or not you intend to return to school is an important consideration in exploring your student loan repayment options. In any case, however, you must always maintain a current and positive repayment status with your student loan obligations. Be Aware of Federal and Private Lender Collection Powers For Federal Loans Always be mindful of the federal government s power to collect on federal student loans. Most importantly, remember that there is no time limit on the collection of a federal student loan. Collection powers include: Seizing tax refunds Issuing administrative wage garnishments without a court order Seizing federal benefits offsets Denying new grants or student loans to defaulted borrowers Reporting defaulted borrowers to credit reporting agencies Charging borrowers very large collection fees For Private Lenders Be aware that loans will usually go into default as soon as a borrower misses a payment. Collection time limits vary by state (usually six years after default). However, private lenders can sue borrowers and get a judgment. The time limit on enforcement of a judgment varies by state. The lender can renew the judgment in most states resulting in an unlimited amount of time to try to collect. 1

3 Federal Loans Name of Holder and/ or Servicer FFEL/Direct Loan Balance or Estimate of Loan Balance Loan Status Indicate whether loan is current, delinquent (note number of months), or in default; include reasons for nonpayment. Monthly Payment Compile and chart your current student loan debt Total Monthly Payment for All Federal Loans 2

4 Private Loans Name of Holder and/or Servicer Loan Balance or Estimate of Loan Balance Loan Status Indicate whether loan is current or number of months delinquent; include reasons for nonpayment Monthly Payment Compile and chart your current student loan debt Total Monthly Payment for All Private Loans 3

5 The National Consumer Law Center (NCLC) encourages student borrowers to consider the various student loan repayment options and associated eligibility requirements. You may find a repayment option that better fits your current situation, depending, of course, on your eligibility. The repayment options are listed in order of best solutions, for federal as well as private student loans. More detailed information is available on the NCLC s website Determine Your Eligibility for Loan Cancellation The first option to explore is your eligibility for cancellation of your student loans. Loan Cancellation Outside of Bankruptcy This is the most complete solution from the borrower s standpoint, but availability is limited and based on specific eligibility requirements, as outlined below. If you think you may qualify, visit for more information and self-help packets. Cancellation forms are available at Cancellation Options for Federal Loans School-related cancellations - School closure - False certification and identity theft - Unpaid refund Personal circumstances - Total and permanent disability (see self-help packet from ) Profession-related options - Teacher loan forgiveness - Public service - Military service - Other Cancellation Options for Private Loans Review loan agreement for conditions; although cancellations are rarely available, negotiation with a lender may be possible Take Action: Identify, Explore and Review Your Options Loan Cancellation and Bankruptcy Both federal and private student loans are difficult, but not impossible, to discharge in bankruptcy. Borrower must prove undue hardship. Consult with bankruptcy attorney. 4

6 Explore Eligibility for Deferment or Other Postponement If you do not qualify for loan cancellation, investigate and consider all possible loan deferment or other repayment-postponement opportunities. Deferment/Postponement of Federal Loans Deferment overview - See and for detailed information Deferments if borrower is not in default - Student deferment for at least half-time study - Graduate fellowship deferment - Rehabilitation training program deferment - Unemployment deferment not to exceed three years - Economic hardship deferment, granted one year at a time for a maximum of three years - Military and post-active duty deferments Deferments with Perkins program only - Full-time service for law enforcement and corrections officers - Volunteer service (Peace Corps, etc.) Forbearance (less desirable than deferments because interest will accrue, but can be a good stopgap measure) Discretionary (FFEL borrowers) - Poor health/other personal problems that affect your ability to make scheduled payments (for both FFEL and Direct Loan) - Administrative forbearance for various reasons, such as loan administration (both FFEL and Direct Loan) Mandatory (FFEL borrowers) - Borrower requests forbearance from the holder of the loan and provides sufficient supporting documentation for the request (see and for more information) Deferment/Postponement of Private Loans - Check loan agreement for specific programs; these usually require negotiation with lender 5

7 Look Into Ways to Modify Repayment, Including Loan Consolidation If your loans are not eligible for cancellation or postponement, determine whether they are eligible for a modified repayment plan, including loan consolidation. Please refer to for more information. Modified Repayment Options for Federal Loans Prior to default - Standard Repayment Plan - Graduated Repayment Plan - Extended Repayment Plan (owe over $30,000/25 years to repay) - Perkins Loan Repayment (contact school for repayment information) Income-based options - FFEL Income-Sensitive Repayment (submit income information to lender; must cover accruing interest) - Direct Loan Income-Contingent Repayment (submit recent tax return information) - Income-Based Repayment Loan consolidation to lower monthly payments - Consolidate some or all loans as a strategy to lower monthly payments - Consolidate loans to participate in income-based repayment programs - Direct Loans (see self-help packet at Already in default Loan consolidation to get out of default - FFEL consolidation - Make three consecutive, affordable monthly payments, or - Agree to an Income-Sensitive Repayment Plan - Direct Loan consolidation - Make three consecutive, reasonable and affordable monthly payments or, - Agree to pay under the Income-Contingent Repayment Plan, or - Income-Based Repayment Plan Note: Avoid consolidating federal loans into private loans (will lose eligibility for special federal loan provisions) Rehabilitation to get out of default - FFEL or Direct Loan rehabilitation (make nine monthly payments within 20 days of the due date during a period of 10 consecutive months) Modified Repayment Options for Private Loans Review loan agreement and negotiate (most private lenders will not offer longer-term modified repayment, but this can be negotiated in some circumstances) 6

8 Investigate Settlement or Compromise Opportunities After you ve explored the possibility of loan cancellation, postponement or loan modification, consider whether settlement or compromise is a viable option. Settlement or Compromise Options for Federal Loans FFEL or Perkins Loans - Department of Education can compromise on loans Direct Loans - See Department of Education guidelines on Settlement or Compromise Options for Private Loans - Negotiate with lender It s important to remember that regardless of whether your loans are federal or private, you ll need to consider the tax consequences of a settlement, and you may want to seek some type of tax assistance. See IRS Publication Consult Taxpayer Advocate, an independent system that helps taxpayers who have not been able to resolve problems through regular channels. Complete Form 911 or call Address/Challenge Collection Actions If your student loans are already in collection, you may elect to challenge the action. To challenge collection (tax refund intercept, wage garnishment, federal benefits intercept, license revocation) seek legal assistance For collection agency issues see self-help packet, Collection Agencies and Your Rights: Sending a Cease Communication Letter from For possible legal claims, including Truth in Lending violations for private loans, problem with school, seek legal assistance For additional help, contact FSA Ombudsman of the Department of Education at Develop an Action Plan for Student Loan Repayment Solution After reviewing the available student loan repayment options and eligibility requirements, take immediate action. Apply for PIN Locate and record student loan information, including outstanding balances Visit for more information Additional Courtesy of the 7